November 23, 2009
The use of the Companies' Creditors Arrangement Act (CCAA) to sell all or substantially all of a distressed business's assets, in the absence of a plan or proposed plan of arrangement, has for some time been a matter of controversy. The controversy peaked in the 2008 case of Cliffs Over Maple Bay Investment Limited v. Fisgard Capital Corp., when the British Columbia Court of Appeal refused resort to an insolvent real estate development "if the debtor company does not intend to propose a compromise or arrangement" to its creditors.
"But in Ontario, liquidations have been an increasing focus of CCAA proceedings," says Tony DeMarinis. "The Nortel case involves separate auctions for the country's key divisions, the GM restructuring was organized as a sale, and there are other CCAA auctions currently underway in proceedings like SkyPower Corp. and Grant Forest Products."
The Nortel proceeding is particularly important because Justice Geoff Marawetz of the Ontario Superior Court of Justice took the opportunity to consider the court's power to approve substantial asset sales in the absence of a restructuring plan. He noted that such sales had occurred previously under the CCAA, citing the insolvencies of Stelco, Canadian Red Cross and Consumers Packaging. He distinguished Cliffs Over Maple Bay, noting that the assets, comprising a real estate development, did not include an operating business.
"Morawetz reinforced the view that the CCAA is flexible legislation to which the courts must give a liberal interpretation, and that the overreaching purpose of the CCAA is to preserve a business as a going concern without regard to a change in the ownership of the business," says Tony.
Justice Morawetz cited several guiding principles for the exercise of the court's discretion, including whether the transaction would benefit the whole economic community. "This perpetuates the view that courts in restructuring proceedings will consider the interests not only of creditors, but of other interested parties, particularly employees and the community-at large," says Tony.
Despite the fact that recent amendments to the CCAA now specifically authorize assets sales, Nortel remains an important precedent because the amendments do not speak to the necessity for a restructuring plan in a proposed CCAA liquidation.